Here's Why We're Wary Of Buying Riyadh Cement's (TADAWUL:3092) For Its Upcoming Dividend
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Riyadh Cement Company (TADAWUL:3092) is about to trade ex-dividend in the next three days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Therefore, if you purchase Riyadh Cement's shares on or after the 14th of September, you won't be eligible to receive the dividend, when it is paid on the 28th of September.
The company's next dividend payment will be ر.س0.80 per share. Last year, in total, the company distributed ر.س1.60 to shareholders. Based on the last year's worth of payments, Riyadh Cement has a trailing yield of 6.8% on the current stock price of ر.س23.69. If you buy this business for its dividend, you should have an idea of whether Riyadh Cement's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Riyadh Cement paid out 104% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. A useful secondary check can be to evaluate whether Riyadh Cement generated enough free cash flow to afford its dividend. Over the past year it paid out 150% of its free cash flow as dividends, which is uncomfortably high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.
As Riyadh Cement's dividend was not well covered by either earnings or cash flow, we would be concerned that this dividend could be at risk over the long term.
View our latest analysis for Riyadh Cement
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's not ideal to see Riyadh Cement's earnings per share have been shrinking at 3.4% a year over the previous five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Riyadh Cement's dividend payments per share have declined at 1.8% per year on average over the past five years, which is uninspiring.
To Sum It Up
Has Riyadh Cement got what it takes to maintain its dividend payments? It's looking like an unattractive opportunity, with its earnings per share declining, while, paying out an uncomfortably high percentage of both its profits (104%) and cash flow as dividends. This is a clearly suboptimal combination that usually suggests the dividend is at risk of being cut. If not now, then perhaps in the future. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.
With that being said, if you're still considering Riyadh Cement as an investment, you'll find it beneficial to know what risks this stock is facing. We've identified 2 warning signs with Riyadh Cement (at least 1 which doesn't sit too well with us), and understanding them should be part of your investment process.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.